Real Estate Glossary > P > Pre-approval Definition

A letter from a bank or a lender estimating how much they'll lend a borrower. Getting pre-approved for a loan helps establish a price range and determines how much the borrower can afford. To get pre-approved, the borrower must provide the lender with personal information such as his social security number, as well as financial information like his W-2 forms, credit history and payment stubs. Lenders will verify the borrowers' credit, income, employment and other assets. Pre-approval can be completed online and usually takes about four hours to process. In markets with multiple offers, it's important to be pre-approved during the touring process so buyers can act quickly and put in a competitive offer when they find the right place. Home-sellers expect buyers to be pre-approved as there's less of a chance that the deal will fall through due to trouble obtaining financing.

Pre-approval is different than pre-qualification, which is a more informal process to figure out how much a borrower can afford. With pre-qualification, the lender won't verify any of the information the borrowers provide.